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Merchants CAN and DO Charge You Extra for Credit Card Usage

by Darwin on November 10, 2013

I was picking up a pizza this weekend and was perturbed by the sign stating “3% Extra for Credit Cards”. Not only is accepting credit cards a normal business practice and a convenience for customers, but for years, it was explicitly disallowed by the credit card companies. So, since I only had a ten on me, I gave them my card to see what would happen and as it turns out, yes, they did tack on 3% onto my bill. While this only equated to about a dollar for me, I had to investigate.

I promptly did some nifty searches and quickly realized that yes, this used to be a banned practice if you wanted to offer Visa, American Express, etc., but now, it is actually mandated that businesses be allowed to charge extra, as well as set minimum purchase requirements (usually a $10 minimum). As part of the Dodd-Frank Act in 2010, merchants were allowed to have latitude on both issues to do as they please. I used to be annoyed with gas stations claiming a “cash discount” which is really a credit card penalty, but I now realize what they’re doing is allowed as well (I do avoid those stations as well out of principle).

Evidently, the credit card companies weren’t pleased with this change, nor are consumers, but it’s a win for small stingy businesses that want to actually turn a profit on credit card transactions. Fortunately, you can offset these costs and still come out ahead on most credit card transactions with top cash back rewards cards, of which there are many. Compare across the best based on your spending via this cash back comparison table. You can get up to 5% back on several key categories. We save hundreds of dollars per year in tax-free income via cash back cards, so no reason not to take advantage of the benefits!

“Evidently, the credit card companies weren’t pleased with this change, nor are consumers, but it’s a win for small stingy businesses that want to actually turn a profit on credit card transactions.”

Of course, you left out the part where credit card processing involves a small fee for the “stingy business”. In fact, for small businesses this fee is a larger percentage of sales due to the lower volume of transactions. (5-10 transactions per week for a mom and pop shop versus hundreds of thousands per day for Target.)

So, the original idea of the cash discount was not to “turn a profit” but really to prevent a loss. Even across cards you could find that American Express has not accepted in nearly as many places as the Visa and MC. This is due to the fees being higher for Amex than for the other two.

Here’s the thing. You want to enjoy the convenience and benefits of the credit card business but then pass all the costs on to the consumer. If you only have 5 transactions in a week, that’s probably not the type of business that should be taking credit cards anyway. For every business like yours that wants to pass all the costs on to the customer, there are 99 that don’t charge an added fee. Consumers remember stuff like this.

I see both sides of this; the business used to eat the 2-4% credit card costs, coming directly from profits. But if the consumer respects the convenience, as Darwin did, and eats the 2-4% (equating to $1), it doesn’t matter to the business unless this practice can be demonstrated to result in fewer sales.(by that same 2-4% of receipts).

My own thought is that small businesses like pizza places, gas stations, other non-chain retail stores, is that they want to encourage/reward cash customers. You can draw your own conclusions as to ‘why’.:-)

The only way to beat a 3% sales charge is if you happen to get 5% back with one of those “rotating categories” offers. I have them among three different cards, and usually at least one is offering 5% for restaurants, but not always.

Still, if the convenience is worth paying for, there should be no complaint. Whether the charges are rolled into the “cost of doing business” or billed directly to the customer, we end up paying either way. Only difference is now there is more transparency, which is generally good for consumers and bad for Visa and Big Banks.